Tuesday, May 31, 2005


A good friend was kind enough to allow me to help him with a new account. You might know, the account was opened on the last day of 2004 when the market was on an intermediate-term high. We immediately invested all funds aggressively.

Had I a crystal ball, I would have told him to wait. We would have waited and waited until the market bottomed in late April (as I recall). This friend has other stocks, other accounts and other investments. Not having the crystal ball, we bought high beta stocks--swinging for at least a home run or two.

The account tanked faster than a school bus in quick sand. After three months, my friend was starting to wonder if I knew what I was doing. His account was down more than double the decline in the broader market. The only thing we had to show on the positive side was several realized tax losses. For example, we bought EBAY, rode it down 25% and swapped it for Google. We now have a nice profit in Google and a few thousand dollars savings on income taxes. We were also burned by trucking and railroad stocks. We made profits on oil drilling stocks but decided prices were too high.

Near the bottom, we added heavily to our airline holdings (jumping from oil to airlines). We are now sitting on a 6% gain for the year! Other stocks have helped; we have gains in QCOM, TXN, TIVO in addition to Google and three airlines. Again, this is an aggressive account and only a small part of the owners total portfolio. He is comfortable owning high beta stocks and over-weighting airlines even though the balance sheets are extremely poor.

This account will continue to be a roller coaster ride (we think we are still climbing a steep airline hill). A roller coaster is fun for some but a nightmare for others. Having broken to the top side, it is our hope to never go negative again. As realist, we expect to see big jumps and dips in the future. In an older aggressive account, we dropped sharply during the same time frame but are now on net new highs. This account did so well in late 2002 and 2003 that it is no big deal to see it jump up and down a little.

I send my thanks to my friend. It was a surprise to me for the account to be down so much so fast. I appreciate the confidence he showed at the bottom. As an private investor, I am helping my friend at no charge. As an old retired guy, this adds meaning to my life and I am thankful. I helped another friend make a quick $40,000 profit on a low risk real estate deal earlier this year. Life is grand. Roller coasters are fun.